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What AMR Says About the Economy

Do signs of stabilization from the carrier's quarterly report offer hope for the economy?
Author:

The

AMR

(AMR)

earnings call offered these insights into the economy's future: Things are not getting worse, and the CEO is optimistic.

Historically, airlines are a lagging indicator, but the numbers from American seem to support the widespread belief that the economy has hit bottom and now awaits an upturn that, at the moment, is not imminent.

"We're not seeing further deterioration

in future bookings and I think that's good news," said CEO Gerard Arpey. Advance bookings for the current quarter are down about two points, generally consistent with what the world's second-largest airline saw in the first quarter, he said.

CFO Tom Horton said the carrier's first-quarter loss was less than what it expected a month ago, thanks to "close-in traffic build," which boosted revenue. "It's too early to tell whether that portends a positive trend," he said.

During the quarter, mainline passenger revenue per available seat mile fell by 8.7%, and yield, representing average fares paid, fell by 4.5%, the first year-over-year decrease following 15 consecutive quarters of increases.

However, the late improvement helped American beat analyst estimates for earnings and revenue, driving a 19% jump in the carrier's share price.

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Arpey indicated he personally is optimistic. He quoted

Federal Reserve

Board Chairman Ben Bernanke as saying, "I am fundamentally optimistic about the economy -- we face no problems that cannot be overcome with insight, patience and persistence." Arpey added: "That's kind of consistent with what my gut tells me about the U.S. economy."

A big problem for American and other airlines is that corporate travel has fallen off a cliff. Horton said the drop in corporate travel revenue was "significantly more" than the 15% drop in overall revenue. In particular, transatlantic travel fell nearly 18%, driven largely by weak corporate demand, Horton said. That could portend problems for

Continental

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and

Delta

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, both major transatlantic carriers who report next week.

Arpey noted that "corporations travel for a reason. Travel is integral to what many companies do in our country. Therefore, I think if we can get the economy stabilized and improving, companies can turn the travel back on just as quickly as they've turned it off."